UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
Commission File Number: 0-26876
OAK HILL FINANCIAL, INC.
(Exact name of Registrant as specified in its charter)
Ohio 31-1010517
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14621 State Route 93
Jackson, Ohio 45640
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (740) 286-3283
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No ____
As of May 2, 2001, the latest practicable date, 5,043,044 shares of the
Registrant's common stock, $.50 stated value, were issued and outstanding.
Oak Hill Financial, Inc.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3: Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 13
Item 2: Changes in Securities and Use of Proceeds 13
Item 3: Default Upon Senior Securities 13
Item 4: Submission of Matters to a Vote Of Security Holders 13
Item 5: Other Information 13
Item 6: Exhibits and Form 8-K 13
Signatures 15
2
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
March 31, December 31,
ASSETS 2001 2000
Cash and due from banks $ 13,765 $ 13,224
Federal funds sold 4,586 77
Investment securities designated as available for sale - at market 64,680 56,323
Investment securities designated as held-to-maturity - at cost (approximate
market value of $4,912 and $4,598 at March 31, 2001 and December 31, 2000,
respectively) 4,947 4,947
Loans receivable - net 612,925 598,903
Loans held for sale - at lower of cost or market 1,489 183
Office premises and equipment - net 9,311 9,296
Federal Home Loan Bank stock - at cost 5,070 4,981
Accrued interest receivable 4,375 4,213
Goodwill - net 241 249
Prepaid expenses and other assets 1,262 715
Accrued federal income taxes -- 625
Deferred federal income taxes 638 901
------- -------
Total assets $723,289 $694,637
======= =======
LIABILITIES and STOCKHOLDERS' EQUITY
Deposits $581,938 $562,617
Securities sold under agreements to repurchase 389 143
Advances from the Federal Home Loan Bank 78,411 70,152
Notes payable 2,400 2,300
Subordinated debentures 5,000 5,000
Federal income taxes payable 178 --
Accrued interest payable and other liabilities 4,377 4,529
------- -------
Total liabilities 672,693 644,741
Stockholders' equity
Common stock - $.50 stated value; authorized 15,000,000 shares, 5,420,564 and
5,414,576 shares issued at March 31, 2001 and
December 31, 2000, respectively 2,710 2,707
Additional paid-in capital 5,093 5,040
Retained earnings 48,124 46,913
Treasury stock (377,520 and 304,470 shares at cost at March 31, 2001
and December 31, 2000, respectively) (5,710) (4,680)
Accumulated comprehensive income (loss):
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects 379 (84)
------- -------
Total stockholders' equity 50,596 49,896
------- -------
Total liabilities and stockholders' equity $723,289 $694,637
======= =======
3
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended March 31,
(In thousands, except share data)
2001 2000
INTEREST INCOME
Loans $13,981 $11,406
Investment securities 1,005 868
Interest-bearing deposits and other 149 128
------ ------
Total interest income 15,135 12,402
INTEREST EXPENSE
Deposits 7,193 5,360
Borrowings 1,229 882
------ ------
Total interest expense 8,422 6,242
------ ------
Net interest income 6,713 6,160
Provision for losses on loans 567 360
------ ------
Net interest income after provision for losses on loans 6,146 5,800
OTHER INCOME
Gain on sale of loans 217 61
Loss on investment securities transactions (4) --
Service fees, charges and other operating 660 560
------ ------
Total other income 873 621
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE
Employee compensation and benefits 2,725 2,196
Occupancy and equipment 512 465
Federal deposit insurance premiums 39 24
Franchise taxes 159 143
Other operating 948 943
------ ------
Total general, administrative and other expense 4,383 3,771
------ ------
Earnings before federal income taxes 2,636 2,650
FEDERAL INCOME TAXES
Current 893 927
Deferred (24) (42)
------ ------
Total federal income taxes 869 885
------ ------
NET EARNINGS $ 1,767 $ 1,765
====== ======
EARNINGS PER SHARE
Basic $.35 $.33
=== ===
Diluted $.35 $.33
=== ===
4
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31,
(In thousands)
2001 2000
Net earnings $1,767 $1,765
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities designated as available for sale,
net of taxes (benefits) of $236 and $(74), respectively 460 (143)
Reclassification adjustment for realized losses included in net earnings,
net of tax benefits of $1 3 --
----- ------
Comprehensive income $2,230 $ 1,622
===== ======
Accumulated comprehensive income (loss) $ 379 $(1,721)
===== ======
5
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,
(In thousands)
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings for the period $ 1,767 $ 1,765
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 215 188
Loss on sale of securities 4 --
Amortization of premiums and discounts on investment
securities - net 7 14
Proceeds from sale of loans in secondary market 11,116 2,221
Loans disbursed for sale in secondary market (9,276) (1,974)
Gain on sale of loans (110) (4)
Amortization of deferred loan origination costs 73 15
Federal Home Loan Bank stock dividends (89) (53)
Provision for losses on loans 567 360
Acquisition of real estate acquired through foreclosure 1 --
Amortization of goodwill 8 8
Increase (decrease) in cash due to changes in:
Prepaid expenses and other assets (677) 185
Accrued interest receivable (162) 59
Accrued interest payable and other liabilities (152) 487
Federal income taxes
Current 849 (370)
Deferred (24) (42)
------ ------
Net cash provided by operating activities 4,117 2,859
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Loan disbursements (65,221) (67,961)
Principal repayments on loans 47,523 50,415
Principal repayments on mortgage-backed securities 1,270 366
Proceeds from sale of investment securities 11,551 --
Proceeds from maturity of investment securities -- 30
Proceeds from disposition of assets 131 --
Purchase of investment securities (20,487) (1,946)
Purchase of office premises and equipment (230) (135)
(Increase) decrease in federal funds sold (4,509) 2,067
Purchase of Federal Home Loan Bank stock -- (291)
------ ------
Net cash used in investing activities (29,972) (17,455)
------ ------
Net cash used in operating and investing activities
(balance carried forward) (25,855) (14,596)
------ ------
6
Oak Hill Financial, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended March 31,
(In thousands)
2001 2000
Net cash used in operating and investing activities
(balance brought forward) $(25,855) $(14,596)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds (repayments) from securities sold under agreement to repurchase 246 (711)
Net increase in deposit accounts 19,321 8,175
Proceeds from Federal Home Loan Bank advances 531,425 57,560
Repayments of Federal Home Loan Bank advances (523,166) (59,620)
Proceeds from notes payable 100 500
Proceeds from issuance of debt securities -- 5,000
Dividends on common shares (556) (530)
Purchase of treasury stock (1,030) --
Proceeds from issuance of shares under stock option plan 56 168
------- -------
Net cash provided by financing activities 26,396 10,542
------- -------
Net increase (decrease) in cash and cash equivalents 541 (4,054)
Cash and cash equivalents at beginning of period 13,224 14,675
------- -------
Cash and cash equivalents at end of period $ 13,765 $ 10,621
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Federal income taxes $ -- $ --
======= =======
Interest on deposits and borrowings $ 8,409 $ 5,959
======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Unrealized gains (losses) on securities designated as available for sale,
net of related tax effects $ 463 $ (143)
======= =======
Recognition of mortgage servicing rights in accordance with SFAS No. 125 $ 107 $ 57
======= =======
Transfers from loans to real estate acquired through foreclosure $ -- $ 107
======= =======
Transfer of loans from held for investment to held for sale $ 3,036 $ --
======= =======
7
Oak Hill Financial, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The business activities of Oak Hill Financial, Inc. (the "Company")
have been limited primarily to holding the common shares of Oak Hill Banks
("Oak Hill") and Towne Bank ("Towne"), (collectively hereinafter the
"Banks"). Accordingly, the Company's results of operations are dependent
upon the results of the Banks' operations. The Banks conduct a general
commercial banking business in southern and central Ohio which consists of
attracting deposits from the general public and applying those funds to the
origination of loans for commercial, consumer and residential purposes. The
Banks' profitability is significantly dependent on net interest income,
which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) and the interest
expense paid on interest-bearing liabilities (i.e., customer deposits and
borrowed funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or
received by the Banks' can be significantly influenced by a number of
competitive factors, such as governmental monetary policy, that are outside
of management's control.
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore, do
not include information or footnotes necessary for a complete presentation
of financial position, results of operations and cash flows in conformity
with accounting principles generally accepted in the United States of
America. Accordingly, these financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
the Company included in the Annual Report on Form 10-K for the year ended
December 31, 2000. However, all adjustments (consisting only of normal
recurring accruals), which, in the opinion of management, are necessary for
a fair presentation of the consolidated financial statements, have been
included. The results of operations for the three months ended March 31,
2001 are not necessarily indicative of the results that may be expected for
the entire year.
2. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, the Banks, Action Finance
Company ("Action"), and Oak Hill Capital Trust I (the "Trust"). All
significant intercompany balances have been eliminated.
3. Liquidity and Capital Resources
Like other financial institutions, the Company must ensure that
sufficient funds are available to meet deposit withdrawals, loan
commitments, and expenses. Control of the Company's cash flow requires the
anticipation of deposit flows and loan payments. The Company's primary
sources of funds are deposits, borrowings and principal and interest
payments on loans. The Company uses funds from deposit inflows, proceeds
from borrowings and principal and interest payments on loans primarily to
originate loans, and to purchase short-term investment securities and
interest-bearing deposits.
At March 31, 2001, the Company had $300.0 million of certificates of
deposit maturing within one year. It has been the Company's historic
experience that such certificates of deposit will be renewed at market
rates of interest. It is management's belief that maturing certificates of
deposit over the next year will similarly be renewed at market rates of
interest without a material adverse effect on the results of operations.
In the event that certificates of deposit cannot be renewed at
prevalent market rates, the Company can obtain up to $157.8 million in
advances from the Federal Home Loan Bank of Cincinnati ("FHLB"). Also, as
an operational philosophy, the Company seeks to obtain advances to help
with asset/liability management and liquidity. At March 31, 2001, the
Company had $78.4 million of outstanding FHLB advances.
At March 31, 2001, loan commitments, or loans committed but not
closed, totaled $31.4 million. Additionally, the Company had unused lines
of credit and letters of credit totaling $70.2 million and $1.4 million,
respectively. Funding for these amounts is expected to be provided by the
sources described above. Management believes the Company has adequate
resources to meet its normal funding requirements.
4. Earnings Per Share
Basic earnings per share is computed based upon the weighted-average
shares outstanding during the period. Weighted-average common shares
outstanding totaled 5,090,761 and 5,331,888 for the three months ended
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Earnings Per Share (continued)
March 31, 2001 and 2000, Oak Hill Financial, Inc. respectively. Diluted
earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under the
Company's stock option plan. Weighted-average common shares deemed to be
outstanding for purposes of computing diluted earnings per share totaled
5,090,761 and 5,331,888 for the three months ended March 31, 2001 and 2000,
respectively.
There were no incremental shares related to the assumed exercise of
stock options included in the computation of diluted earnings per share for
three months ended March 31, 2001 and 2000, respectively. Options to
purchase 703,063 and 606,876 shares of common stock with a respective
weighted-average exercise price of $14.79 and $14.42 were outstanding at
March 31, 2001 and 2000, respectively, but were excluded from the
computation of common share equivalents because their exercise prices were
greater than the average market price of the common shares.
5. Effects of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires entities
to recognize all derivatives in their financial statements as either assets
or liabilities measured at fair value.
SFAS No. 133 specifies new methods of accounting for hedging
activities, prescribes the items and transactions that may be hedged, and
specifies detailed criteria to be met to qualify for hedging accounting.
The definition of a derivative financial instrument is complex, but in
general, it is an instrument with one or more underlyings, such as an
interest rate or foreign exchange rate that is applied to a notional
amount, such as an amount of currency, to determine the settlement
amount(s). It generally requires no significant initial investment and can
be settled net or by delivery of an asset that is readily convertible to
cash. SFAS No. 133 applies to derivatives embedded in other contracts,
unless the underlying of the embedded derivative is clearly and closely
related to the host contract. SFAS No. 133, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. On adoption,
entities are permitted to transfer held-to-maturity debt securities to an
available-for-sale or trading category without calling into question their
intent to hold other debt securities to maturity in the future. Management
adopted SFAS No. 133 effective January 1, 2001, as required, without
material effect on the Company's consolidated financial position or results
of operations.
In September 2000, the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities", which revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but carries over most of the provisions of
SFAS No. 125 without reconsideration. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. The Statement is effective for
recognition and reclassification of collateral and for disclosures relating
to securitization transactions and collateral for fiscal years ending after
December 15, 2000. SFAS No. 140 is not expected to have a material effect
on the Company's financial position or results of operations.
9
Oak Hill Financial, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Discussion of Financial Condition Changes from December 31, 2000 to March 31,
2001
The Company's total assets amounted to $723.3 million at March 31, 2001, an
increase of $28.7 million, or 4.1%, over the $694.6 million at December 31,
2000. The increase was funded primarily through growth in deposits of $19.3
million, an increase in FHLB advances of $8.3 million, an increase in notes
payable of $100,000, and an increase in stockholders' equity of $700,000.
Cash and due from banks, federal funds sold, and investment securities,
including mortgage-backed securities, increased by $13.4 million, or 18.0%, to a
total of $88.0 million at March 31, 2001, compared to $74.6 million at December
31, 2000. Investment securities increased by $8.4 million, as purchases of $20.5
million exceeded maturities and repayments of $1.3 million and sales of $11.6
million. Federal funds sold increased by $4.5 million during the three-month
period ended March 31, 2001.
Loans receivable totaled $614.4 million at March 31, 2001, an increase of
$15.3 million, or 2.6%, over total loans at December 31, 2000. Loan
disbursements totaled $74.5 million during the three-month period ended March
31, 2001, which were partially offset by loan sales of $11.0 million and
principal repayments of $47.5 million. Loan origination and sales volume
increased by $4.6 million and $8.8 million, respectively, as compared to the
same period in 2000. The Company's loan growth for the period was comprised
primarily of an $834,000, or 0.2%, increase in loans secured by residential real
estate and an $18.1 million, or 11.9%, increase in commercial and other loans,
which were partially offset by a $3.0 million, or 4.2%, decrease in installment
loans net of unearned interest and a $176,000, or 11.0%, decrease in credit card
loans. The Company's allowance for loan losses amounted to $7.6 million at March
31, 2001, an increase of $422,000, or 5.9%, over the total at December 31, 2000.
The allowance for loan losses represented 1.22% and 1.19% of the total loan
portfolio at March 31, 2001 and December 31, 2000, respectively. Net charge-offs
totaled approximately $145,000 and $350,000 for the three months ended March 31,
2001 and 2000, respectively. The Company's allowance represented 139.23% and
250.81% of nonperforming loans, which totaled $5.5 million and $2.9 million at
March 31, 2001 and December 31, 2000, respectively. At March 31, 2001,
nonperforming loans were comprised of $705,000 in installment loans and $4.8
million of loans secured primarily by commercial real estate and one-to-four
family residential real estate. In management's opinion, all nonperforming loans
were adequately collateralized at March 31, 2001.
Deposits totaled $581.9 million at March 31, 2001, an increase of $19.3
million, or 3.4%, over the $562.6 million total at December 31, 2000. The
increase resulted primarily from management's continuing marketing efforts and
competitive pricing with respect to mid-term certificate of deposit products
throughout the Banks' branch network. Proceeds from deposit growth were used
primarily to fund loan originations and purchases of investment securities
during the period.
Advances from the Federal Home Loan Bank totaled $78.4 million at March 31,
2001, an increase of $8.3 million, or 11.8%, over the December 31, 2000 total.
Notes payable increased by $100,000, or 4.3%. Proceeds from advances and notes
payable were primarily used to fund loan originations during the period.
In March 2000, a Delaware statutory business trust owned by the Company
(the "Trust"), issued $5.0 million of mandatorily redeemable debt securities.
The debt securities issued by the trust are included in the Company's regulatory
capital, specifically as a component of Tier I capital. The proceeds from the
issuance of the subordinated debentures and common securities were used by the
Trust to purchase from the Company $5.0 million of subordinated debentures
maturing on March 8, 2030. The subordinated debentures are the sole asset of the
Trust, and the Company owns all of the common securities of the Trust. Interest
payments on the debt securities are to be made semi-annually at an annual fixed
rate of interest of 10.875% and are reported as a component of interest expense
on borrowings. The net proceeds received by the Company were used for general
corporate purposes, including repurchasing the Company's stock, and providing
general working capital.
The Company's stockholders' equity amounted to $50.6 million at March 31,
2001, an increase of $700,000, or 1.4%, over the balance at December 31, 2000.
The increase resulted primarily from net earnings of $1.8 million and an
increase of $463,000 in the unrealized gains on securities available for sale,
which were partially offset by $556,000 in dividends declared on common stock
and purchases of treasury shares totaling $1.0 million. The Banks are required
to maintain minimum regulatory capital pursuant to federal regulations. At March
31, 2001, the Banks' regulatory capital exceeded all regulatory capital
requirements.
10
Oak Hill Financial, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three month periods ended March 31, 2001 and 2000
Comparison of Results of Operations for the Three-Month Periods Ended March 31,
2001 and 2000
General
Net earnings for the three months ended March 31, 2001 totaled $1.8
million, a $2,000, or 0.1%, increase over the amount reported in the comparable
2000 period. The increase in earnings resulted primarily from a $553,000
increase in net interest income, a $252,000 increase in other income and a
$16,000 decrease in the provision for federal income taxes, which were partially
offset by a $207,000 increase in the provision for losses on loans and a
$612,000 increase in general, administrative and other expense.
Net Interest Income
Total interest income for the three months ended March 31, 2001, amounted
to $15.1 million, an increase of $2.7 million, or 22.0%, over the $12.4 million
reported in the comparable 2000 period. Interest income on loans totaled $14.0
million, an increase of $2.6 million, or 22.6%, over the comparable 2000 period.
This increase resulted primarily from a $91.7 million, or 17.6%, increase in the
weighted-average ("average") portfolio balance, from $521.7 million to $613.4
million for the three months ended March 31, 2000 and 2001, respectively,
coupled with a 45 basis point increase in the average yield, from 8.79% to 9.24%
for the three months ended March 31, 2000 and 2001, respectively. Interest
income on investment securities and other interest-earning assets increased by
$158,000, or 15.9%. The increase resulted primarily from a $6.8 million, or
11.0%, increase in the average portfolio balance, from $62.8 million to $69.6
million for the three months ended March 31, 2000 and 2001, respectively,
coupled with a 34 basis point increase in the average yield, from 6.38% to 6.72%
for the three months ended March 31, 2000 and 2001, respectively.
Total interest expense amounted to $8.4 million for the three months ended
March 31, 2001, an increase of $2.2 million, or 34.9%, over the $6.2 million
reported in the comparable 2000 period. Interest expense on deposits increased
by $1.8 million, or 34.2%, to a total of $7.2 million for the three months ended
March 31, 2001. The increase resulted primarily from a $75.6 million, or 16.9%,
increase in the average portfolio balance, from $447.6 million to $523.2 million
for the three months ended March 31, 2000 and 2001, respectively, coupled with a
76 basis point increase in the average cost of deposits from 4.82% to 5.58% for
the three months ended March 31, 2000 and 2001, respectively. Interest expense
on borrowings increased by $347,000, or 39.3%, for the three-month period ended
March 31, 2001. This increase was due to an $18.3 million, or 29.2%, increase in
average borrowings outstanding, from $62.5 million to $80.8 million for the
three months ended March 31, 2000 and 2001, respectively, coupled with a 50
basis point increase in the average cost of borrowings from 5.67% in to 6.17%
for the three months ended March 31, 2000 and 2001, respectively.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $553,000, or 9.0%, for the three
months ended March 31, 2001, as compared to the three months ended March 31,
2000. The interest rate spread decreased by 28 basis points to 3.33% from 3.61%
for the three months ended March 31, 2001 and 2000, respectively. The net
interest margin decreased by 25 basis points to 3.99% from 4.24% for the
three-months ended March 31, 2001 and 2000, respectively.
Provision for Losses on Loans
The provision for losses on loans represents a charge to earnings to
maintain the allowance at a level management believes is adequate to absorb
losses in the loan portfolio. The Company's provision for losses on loans
amounted to $567,000 for the three months ended March 31, 2001, an increase of
$207,000, or 57.5%, compared to the same period in 2000. The provision for
losses on loans in the three-month period ended March 31, 2001, generally
reflects the $15.7 million of growth in the loan portfolio during the period
coupled with an increase in the level of nonperforming loans year to year. Net
loan charge-offs amounted to $145,000 for the three months ended March 31, 2001,
as compared to $350,000 for the three months ended March 31, 2000.
11
Oak Hill Financial, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the three month periods ended March 31, 2001 and 2000
Comparison of Results of Operations for the Three-Month Periods Ended March 31,
2001 and 2000 (continued)
Provision for Losses on Loans (continued)
Although management believes that it uses the best information available in
providing for possible loan losses and believes that the allowance is adequate
at March 31, 2001, future adjustments to the allowance could be necessary and
net earnings could be affected if circumstances and/or economic conditions
differ substantially from the assumptions used in making the initial
determinations.
Other Income
Other income totaled $873,000 for the three months ended March 31, 2001, an
increase of $252,000, or 40.6%, over the amount reported in the comparable 2000
period. This increase resulted primarily from a $100,000, or 17.9%, increase in
service fees, charges, and other operating income and an increase of $156,000 in
gain on sale of loans, which were partially offset by a $4,000 loss on
investment securities transactions.
General, Administrative and Other Expense
General, administrative and other expense totaled $4.4 million for the
three months ended March 31, 2001, an increase of $612,000, or 16.2%, over the
amount reported in the comparable 2000 period. The increase resulted primarily
from a $529,000, or 24.1%, increase in employee compensation and benefits, an
increase of $47,000, or 10.1%, in occupancy and equipment, and a $5,000, or
0.5%, increase in other operating expense.
The increase in employee compensation and benefits resulted primarily from
increased staffing levels required in connection with the establishment of new
branch locations, additional management staffing, and normal merit increases,
and an increase in benefit plan expense year to year. The increase in occupancy
and equipment expense was due primarily to a $37,000, or 20.8%, increase in
depreciation expense. The increase in other operating expense resulted primarily
from a $32,000 increase in professional fees and an increase in costs associated
with ATM transaction charges and data processing totaling $14,000, which were
partially offset by a $43,000 recapture of a credit card processing write-off
during the fourth quarter of 2000.
Federal Income Taxes
The provision for federal income taxes amounted to $869,000 for the three
months ended March 31, 2001, a decrease of $16,000, or 1.8%, from the $885,000
recorded for the comparable 2000 period. The decrease resulted primarily from a
$14,000, or 0.5%, decrease in earnings before taxes. The effective tax rates
were 33.0% and 33.4% for the three months ended March 31, 2001 and 2000,
respectively.
Item 3: Quantitative and Qualitative Disclosure About Market Risk
There has been no significant change from disclosures included in
the Company's Annual Report on Form 10-K for the period ended
December 31, 2000.
12
Oak Hill Financial, Inc.
PART II
Item 1: Legal Proceedings
Not applicable
Item 2: Changes in Securities
Not applicable
Item 3: Defaults Upon Senior Securities
Not applicable
Item 4: Submission of Matters to a Vote of Security Holders
(a) The Company held its 2001 Annual Meeting of Stockholders
on April 25, 2001. Holders of 4,696,470 common shares of
the Company were present, representing 92.6% of the
Company's 5,072,131 common shares outstanding.
(b) and (c) The following persons were elected Class I members of
the Company's Board of Directors to serve until the 2003
Annual Meeting or until their successors are duly
elected and qualified. Each person received the number
of votes for or the number of votes with authority
withheld, indicated below.
Name Votes For Votes Withheld
---- --------- --------------
Evan E. Davis 4,685,895 10,575
C. Clayton Johnson 4,685,895 10,575
John D. Kidd 4,685,770 10,700
D. Bruce Knox 4,685,270 11,200
Richard P. LeGrand 4,685,895 10,575
The continuing Class II Directors, whose terms expire
at the 2002 Annual Meeting are Barry M. Dorsey, Ed.D.,
Rick A. McNelly, Donald R. Seigneur, and H. Grant
Stephenson.
The proposal for the ratification of the appointment of
Grant Thornton LLP as independent audito r for the
Company for the year ending December 31, 2001, was
approved with 4,683,243 votes FOR, 900 votes AGAINST,
and 12,327 votes ABSTAIN.
Item 5: Other Information
On April 11, 2000, the Company announced its intention to repurchase
up to 320,000 shares, or approximately 6% of its outstanding common
stock. The repurchase program, which was originally to run through
December 31, 2000, was extended until June 30, 2001 or until the
entire amount of shares authorized was repurchased, whichever was
earlier. The Company's Board of Directors approved the buyback program
in light of the existing market conditions and the capital position of
the Company.
The buyback was completed in the first quarter, with a total of
326,620 shares repurchased over the course of the program. The
repurchased shares have become treasury shares that will be used for
general corporate purposes, including mitigating the potential
dilutive effect of the Company's stock option plan.
In April 2001, the Company entered into an agreement to sell a branch
location with approximately $10.7 million in deposits to another
financial institution. The sale is subject to regulatory approvals and
is expected to close before December 31, 2001.
13
Oak Hill Financial, Inc.
PART II (CONTINUED)
Item 6: Exhibits and Reports on Form 8-K (continued)
Item 6: Exhibits and Reports on Form 8-K
The Company has filed the following current reports on Form 8-K with
the Securities and Exchange Commission:
(a) Form 8-K, dated January 23, 2001, filed with the Securities and
Exchange Commission on January 23, 2001.
(b) Form 8-K, dated April 20, 2001, filed with the Securities and
Exchange Commission on April 20, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 2, 2001 By: /s/ John D. Kidd
-------------------------------------
John D. Kidd
President and Chief Executive Officer
Date: May 2, 2001 By: /s/ Ron J. Copher
--------------------------------------
Ron J. Copher
Chief Financial Officer
15